Cities Tell Airbnb, Like Uber, to Grow Up: Leonid Bershidsky

With Uber's problems grabbing all the headlines, it's easy to overlook the fact that the other great "sharing economy" company, Airbnb, is also having issues caused by an overaggressive expansion and a tendency to ignore rules, even if they're reasonable. Because of these issues, usage of the service may be nearing its peak.

Paris, Airbnb's second biggest city worldwide after London, is threatening to sue the US company unless it removes all the listings for rentals not registered with the city authorities. That would be about 80 per cent of all the listed properties. Instead of making sure hosts comply with the law, Airbnb has offered to enforce the city's rule limiting short-stay rentals to 120 days a year - but only in four arrondissements (boroughs), out of Paris's 20, leaving out some neighbourhoods that are especially attractive to tourists, such as Montmartre.

That's only the latest of the platform's regulatory problems in Europe. Berlin, where the permission of borough authorities is required for short-term rentals, has struggled with a similar disregard from Airbnb and hosts, and new legislation is being discussed to limit such rentals to 60 days a year instead of 182 days now allowed for second homes following a recent court decision. There are also plans to raise the fine for non-compliant hosts from €100,000 to €500,000 - more than the average 1,000 square foot apartment is worth in Berlin.

Other cities are even harsher: In Barcelona, renting an entire place without the landlord present is only legally possible if the property is licensed as a hotel. And yet the Catalan capital, which has banned Uber, has thousands of such listings. Last month, Barcelona fined Airbnb €600,000 for advertising the unlicensed properties.

Like Paris, tourist destinations Berlin and Barcelona are among Airbnb's top 10 cities. The restrictions the company faces there are not caused primarily by hotel lobbying; both cities are run by strongly left-wing governments trying to stand up for the rights of renters faced with rising prices and apartment shortages. To be an Airbnb host in these cities often means a certain disregard for the feelings of one's neighbors and a propensity for breaking rules. This, in turn, can result in nightmare experiences for guests.

Australian-born travel blogger Asher Fergusson recently conducted a study of negative Airbnb reviews and complaints and found evidence of a number of scams operated on the platform. These include listing a property at different price points and canceling the lower-priced offer at the last moment if the higher-priced one gets booked, as well as providing outrageously deceptive information and images. Once the scam stops working and the host is kicked off the platform, he or she simply registers again: Airbnb only does background checks if the host provides personal data, which is not required. Fergusson himself got scammed in Paris - and recorded evidence of his "host" using the same pictures with five different email addresses within six weeks. Airbnb, Fergusson reported, has sometimes censored negative reviews or prevented their publication and did nothing to stop hosts from harassing a guest for leaving a bad review.

Airbnb told Fergusson that the "number of problem Airbnb stays is between 3 per cent and 7 per cent." But that's a lot like Facebook and Twitter saying a certain percentage of accounts on their platforms is fake. The information comes out of a black box and cannot be verified, while the platform is passionately interested in lowballing the numbers. Besides, one of the worst scenarios on Airbnb doesn't even involve a stay, but when a host suddenly cancels a booking at the last moment, in some cases keeping part of the payment. I've had a host cancel a booking on me; there's no way to complain about it -- it just gets noted on the host's profile.

I suspect that scammers and antisocial elements flocking to the law-ignoring platform is one reason why Airbnb growth has recently slowed down both in the U.S. and Europe, as Morgan Stanley pointed out in a research note last month. The investment bank noted that, while its surveys showed a jump in Airbnb use by travelers to 22 percent in 2016 from 14 percent in 2014, only 25 percent reported using it in 2017.

"Privacy/safety are material and growing barriers to adoption," Morgan Stanley wrote, also pointing out that potential customers' awareness of the platform is close to saturation level, also limiting growth. "Typically consumers become more comfortable with emerging technologies as awareness/testing/adoption grow. This doesn't appear to be happening for Airbnb."

The findings prompted Morgan Stanley to reduce its growth forecasts for Airbnb. It now expects the platform to grow to 6 percent of hotel demand by 2020, rather than 9 per cent.

Airbnb's problem is not unlike that faced by much of the expansionist US tech sector - Uber as much as Google or Apple with their exotic tax arrangements. It's been in a hurry to invade new markets, and it has had little respect for pre-existing rules in conquered territories. But since these rules existed to make the market safer and saner for consumers' sake, it undermined its own reputation and ended up growing slower than tech boosters expected. It's time for the industry in general, and Airbnb in particular, to grow up; at a minimum, it should rule out anonymity for hosts, conduct proper background checks and provide firm guarantees that a traveler won't end up scammed or just helpless on the streets of a strange city. And in cities such as Paris, Berlin and Barcelona, where its activities are contributing to turning whole central neighbourhoods into for-profit tourist traps, it means complying with length-of-rental and registration rules, as well as helping the authorities collect taxes.

If Airbnb does all that, however, it'll likely return to its roots as a platform for hosts who are willing to let out a room in their primary home - and travellers who want that kind of stay. On more hotel-like offerings, it'll be hard for it to outcompete online travel agencies such as Booking.com, which Morgan Stanley already considers a major and growing threat to Airbnb's market share.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.